Walgreen Profit Drops Amid Loss of Express Scripts Customers

Walgreen Co. posted an unexpected decline in quarterly profit on Friday as the largest U.S. drugstore chain worked on winning back former customers and changed how it accounts for its first international acquisition.

For the first 8-1/2 months of 2012 Walgreen could not fill prescriptions for patients on Express Scripts Holding Co. benefits plans because of a contract dispute between the companies, which meant millions of customers switched to other pharmacies to get their medications. Walgreen is trying to lure them back with offers such as $25 gift cards.

Walgreen also said earnings were reduced by a decision to r report r results from its stake in Europe's Alliance Boots Holding Ltd. on a one-quarter lag rather than a one-month lag. T he decision was based on regulatory, audit and business concerns, it said.

Shares of Walgreen, which has 8,000 U.S. drugstores, fell 2.3 percent to $36.70 in early trading.

Walgreen earned $413 million, or 43 cents per share, in the fiscal first quarter ended Nov. 30, down from $554 million, or 63 cents per share, a year earlier.

Earnings before unusual items fell to 58 cents per share from 71 cents a year earlier, missing analysts' average forecast of 70 cents, according to Thomson Reuters I/B/E/S.

Unusual items in the latest quarter included costs related to acquisitions, an inventory provision, and the effects of Hurricane Sandy.

Results from Alliance Boots cut adjusted earnings per share by 7 cents, rather than adding 3 cents as was expected if results had been reported using a one-month lag.

Walgreen paid $7 billion in cash and stock for a 45 percent stake in the European pharmacy operator in August and has an option to buy the rest of the company in about three years.

Walgreen's first-quarter sales fell 4.6 percent to $17.32 billion, with sales at stores open at least a year, or same-store sales, down 8 percent.

The sales performance was slightly worse than Walgreen reported earlier this month. At that time, it said sales fell 4.5 percent to $17.34 billion and same-store sales declined 7.7 percent.

The company has seen strong demand for flu shots and other immunizations continue into December, Chief Executive Greg Wasson said.

Walgreen has stepped up its marketing to bring back Express Scripts patients and also has been promoting a new loyalty card, signing up more than 45 million shoppers in a few months.

Walgreen's two largest rivals, CVS Caremark Corp. and Rite Aid Corp., got a sales boost when Walgreen did not fill prescriptions for patients on Express Scripts plans. Now, CVS and Rite Aid are working to retain those customers, while Walgreen is trying to win them back.

On Dec. 13, CVS said it still expected to retain at least 60 percent of the Walgreen patrons that switched to its chain, which should boost CVS' fourth-quarter earnings by at least 12.5 cents per share.

On Thursday, Rite Aid said it has retained "the lion's share" of patients it gained during the dispute.

Walgreen Co. posted an unexpected decline in quarterly profit on Friday as the largest U.S. drugstore chain worked on winning back former customers and changed how it accounts for its first international acquisition.